My economy and market cycles continue to point to mid-2014 into late 2019 as the period when endless artificial stimulus will finally fail… when the great housing market bubbles that have yet to burst finally do… when we’ll see an even greater global series of market crashes… when debt will finally be allowed to deleverage… and when we’ll see a 1930s-style deflation.
Remember, the winter shake-out season follows the fall bubble boom, where debt exploded and all financial sectors bubbled up in value. Now, when the bubble finally bursts, almost all financial assets and the stock market will suffer.
That means that asset allocation, the Holy Grail of financial advisors and the comfort blanket of set-it-and-forget-it investors, just won’t work! They’re dressing themselves in swim shorts and flip-flops for a trip to the Arctic.
Remember the crash from late 2007 into early 2009? How did asset allocation work for you then, when almost everything in the market went down: stocks (small cap and large cap), international and emerging markets, real estate, commodities, gold and silver, corporate and high-yield bonds?
Where was there to hide?
The only place to “hide” was in the U.S. dollar and in the highest quality government bonds from Germany to the U.S.
The first thing to understand is that the field of opportunities narrows greatly in the economic winter season, where deflation and deleveraging is the order of the day. So what’s an investor to do during a time like this (from now into 2019)?
There are three types of opportunities:
Opportunity #1: Cash and Cash Equivalents
The clearest thing to do during an economic winter season is to play it safe. Preserve any gains you made during the bubble years by selling risk assets, like stocks and real estate, commodities and gold and silver, and simply be in cash.
Treasury bills, or shorter-term government bonds and CDs are another good option during this time.
Sleep well at night and wait for the next great crash knowing you’re not unnecessarily exposed. After the muck hits the fan, you can buy anything you want, including a Ferrari or your dream beach house, at the sale of a lifetime.
Opportunity #2: Bet on the U.S. Dollar
Bet on the U.S. dollar rising against most major currencies, especially the euro. I have traveled the world for over 30 years and know what currencies should be valued at longer term. The euro should be more on pare with the dollar, the pound sterling: $1.20 to the dollar, the Aussie dollar: 60 to 70 cents to the dollar, and the Canadian dollar: 65 to 75 cents to the U.S. dollar.
After being devalued 58% during the last bubble boom, where we created $42 trillion in private debt, the last global financial crisis saw the dollar rise 27% versus a basket of six major currencies. And I don’t think it’s done yet. I think it will go up another 40% or so in the next crisis.
Put yourself into the dollar now either through the ETF, UUP, or better through dollar bull funds.
Opportunity #3: Risk-On Assets
Also look to short risk-on assets from stocks to commodities to gold and silver to high-yield corporate bonds, but be warned, this strategy offers higher gains, so there’s more risk as well.
To short U.S. stocks, you can buy an inverse ETF that moves opposite to the S&P 500 with no leverage. However, to mitigate this risk, follow a proven trading model, like the one Adam O’Dell uses in his Cycle 9 Alert.
I say, instead of becoming a trader, find a good trader and trading system!
His system uses algorithms that highlight when to get into opportunities and then when to get out. The holding period of any given play is never more than three months and with various other crucial components to his system, you’re able to make the most of any market.
No matter which of these opportunities you grab to survive and prosper the great crash ahead — all or none — employ diversification and realistically take into account your personal risk tolerance.
If you’re a typical growth investor, in your early 50s, consider going with something like 30% cash, 40% U.S. dollar bull, and 30% short risk-on assets including stocks. If you’re a more conservative investor, in your 60s or 70s, consider going with 40% cash, 40% U.S. dollar, and 20% short risk-on assets.
The bottom line is this: If you’re going to stay in the market, do so following a proven trading system that is disciplined and objective. Don’t go with your gut in this market. That’s how you’ll end up spilling blood. And that would be so unnecessary when there’s a much better way.
|Follow me on Twitter @HarryDentjr|